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Toyota Must Protect Its Image in China

The Quality Crisis Facing the Japanese Car Giant Should Serve as a Warning to Ambitious Local Auto Companes, Says Yang Jian

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SHANGHAI (AdAgeChina.com) -- While Toyota Motor Corp.'s recall crisis has reached nightmare proportions in America, the problem in China has been much more limited, thanks mainly to the much smaller number of vehicles affected.

But that does not mean, in Chinese eyes, the august brand has escaped unblemished. If the great Japanese automaker wants to prevent further damage in the world's biggest car market, there is much that it needs to do.

Yang Jian
To start: the total number of vehicles recalled by Toyota in China so far has been 75,552, less than 1% of the 9 million called back worldwide.

They have all been the same RAV4 SUV model. And that's because this relatively low-selling vehicle for Toyota in China has been the only one fitted with the same faulty floor mats or sticky gas pedals plaguing the company in the US.

Other affected models are not sold in China. Or, built locally, they use parts from different component makers to those supplying Toyota's production in America.

Yet obviously, the damage to Toyota in China from a global problem has not been inflicted solely by domestic recalls. With Chinese consumers closely watching the saga's escalation across the Pacific, their perception of the Japanese brand can only be deteriorating.

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According to a survey conducted by market researcher TNS Automotive earlier this month, 74% of Chinese car drivers are aware of Toyota's current trouble in the U.S. Nearly two out of three respondents acknowledged their confidence in the Japanese car maker has been affected.

Toyota's total car sales last year were up 21%, to 709,000, from 2008. But the company's fast expansion over the past few years has come against a backdrop of frequently hostile coverage of vehicles like the RAV4 in the Chinese media. Clearly, Toyota has not been doing enough to address such coverage.

To sustain such high growth Toyota needs to tighten its grip on quality control. Otherwise, the likelihood is that the more it sells, the more defects will appear in its cars.

That could deal a heavy blow to the Japanese brand in a market that has so far been a bright spot in a sea of global woes.

At the same time, the massive recalls Toyota Motor Corp. is being forced to carry out in the U.S. offer a timely lesson for domestic Chinese brands: No matter who you are, there is a limit to the speed at which an automaker can grow sustainably. If that speed is exceeded for short-term gain, overall long-term growth will suffer.

Thanks to government incentives for small cars, passenger vehicle sales in China surged 47% in 2009. The huge expansion was a boon to domestic and international automakers alike. Yet there is evidence that for homegrown players, the booming market has engendered overconfidence and a dangerous complacency.

While international brands are expecting to achieve sales growth of between 10% and 20% this year, most domestic Chinese brands aim to sell at least 50% more cars in 2010.

BYD Auto Co., for instance, plans to boost its 2010 sales to 800,000 units, up from last year's 445,097 units. Two other major domestic Chinese automakers--Chery Automobile Co. and Changan Automobile Co.--both aim to reap a 60% growth in sales this year.

I wonder how these companies hope to realize these targets without harming themselves in the long run. Pushing for such a high rate of growth is sure to strain their resources. They will risk compromising the quality of their products, as happened with Toyota when it overlooked defects in its race to become the world's biggest automaker.

While the Toyota brand has certainly been tarnished, there is a good chance the damage can be repaired. Toyota's wealth of expertise gives it the ability to restore its once-famous quality control. A reputation that took decades to build cannot be undone in a few months.

Not so for domestic Chinese automakers, who are struggling to hold market share and have no such reputation to speak of. Through such reckless pursuit of growth they risk sacrificing their product quality. In the long run, this will jeopardize their very survival in the market.